CFO Community Conversation reveals what the future of aviation looks like
SAA’s Fikile Mhlontlo and Lanseria’s Mpolaheng Mohlopi unpack what the future of the aviation industry will look like.
After what have undoubtedly been turbulent times for South African Airways, the airline is set to return to the skies in September following a rigorous turnaround and business rescue process. Interim CFO Fikile Mhlontlo unpacked some of the challenges that SAA has faced, as well as the opportunities that lie ahead, in a recent CFO Community Conversation.
Fikile stepped into the role of interim CFO on 1 April 2021 and said that the opportunity to work with the interim board at SAA in transitioning the airline from business rescue to operations was the reason he accepted the role. He sees it as an exciting opportunity to contribute his “experiences and intellect in this historic project”.
He explained that, a few years ago, SAA’s balance sheet was in deficit running to billions of rands and was funded during the business rescue process in order for it to be sustainable. “The model that we want to operate under going forward has to be self-sustaining,” Fikile said, referring to various costs such as leasing aircraft, labour and fuel. “The aircraft we’re looking at using should be fuel-efficient and require a low level of maintenance, unlike the way the airline has been operating until now.”
Fikile added that once it relaunches, SAA will be a very different airline. “We will be a significantly smaller airline,” he said. “When we went into business rescue, we were a 46-craft airline. We’re going to start with less than 10 aircraft in September 2021 and grow to probably half of what we used to be.”
A smaller aviation industry
Not only will SAA be relaunching as a much smaller airline, but Lanseria International Airport CFO Mpolaheng Mohlopi said that the entire aviation industry is currently much smaller than pre-Covid-19 levels. “We’ve all had to start small again,” she said.
She explained that the impact of Covid-19 on the aviation sector has been dire. “As a sector, we employed more than 500,000 people pre-Covid-19. However, during the pandemic, we were only able to transport 34 percent of what we did in 2019, which meant we had to reduce the number of employees and resources significantly. So the negative impact on the ecosystem continues to be quantified.”
Mpola added that the one thing Covid-19 had taught everyone in the aviation industry was to recognise the level of operations they need to have. “That has been our strategy, to change form and size constantly, because there is never certainty about the level of work or resources we need as Covid-19 regulations change constantly.”
She adds that SAA has taken a good decision to start small until such time as there is sufficient demand to expand again.
Fikile explained that, while SAA plans to grow from a small airline, depending on the level of activity and demand in the market, the airline’s ambition isn’t to return to the level of operating that it had before. “In fact, at our peak we’re probably going to be at half the capacity that we were pre-Covid-19, but importantly we aim to provide a good, make some money and be self-sustaining.”
Mpola added that this will be true for the entire aviation industry, which has seen the decreased demand of air travel impact its ridership significantly. “When airports and airlines were allowed to start trading again in June 2020, we started at about five percent of pre-Covid-19 operation levels. It improved significantly after that, but we had to start all over again following the suspension of travel in July 2021. We are now working our way up again.”
She said that, with SAA returning to the air soon, Lanseria hopes that the recovery will be quicker, but expects more disruptions along the way due to further Covid-19 restrictions.
Mpola said industry projections throughout the aviation industry will see a complete recovery by 2022, but she believes it’s a tall goal. “I think we’ll only start seeing a return to 80 percent of what we had in 2019 by the end of 2024. It’s going to be a slow growth to get back to those numbers, largely because the biggest portion of travel has been business, which has now digitised.”
Fikile added that “there is a new way of working that is affecting us all. I don’t know if we’ll ever get back to 100 percent.”
This new way of working will change the entire face of the aviation industry, said Mpola. “While we like the convenience that has come with virtual meetings, it has had a negative impact on our businesses, because in most cases the biggest chunk of our clients were business travellers.”
She explained that, as an industry, airports and airlines are still trying to figure out how they can bring back the demand for flying. “It’s such a difficult task because a lot of entities have realised savings throughout this process. It’s going to take a lot of innovation to get back to at least 50 percent of what we used to do around 2019.”
Planning for a sustainable future
Most of Fikile’s and Mpola’s days are spent engaging with the stakeholders of their companies, as they plan for the future of their industry. “In our sector, everything you do has to be aligned to our stakeholders, including employers, regulators, financial institutions, shareholders, suppliers and more,” Fikile said.
Mpola explained that it has been crucial for Lanseria to engage with its service providers, as some of them were also heavily impacted by Covid-19. “It’s important to understand their issues and then to implement mitigation measures, because not all companies are surviving during this time.”
They have to do the same with customers like SAA, she explained. “It’s not like in the past where we were solely focused on the value that we create for them, but also to understand how they are navigating the pandemic and how we can review their payment terms or relationship with us to cushion the impact.”
Since exiting the business rescue process, Fikile explained that SAA has also had to spend a lot of time engaging with different stakeholders to renegotiate their relationships. “Because we have become smaller, I have to give input in various restructuring efforts, look at the input costs, which includes IT-, maintenance- and employee-related costs.”
His first three months in the role were dominated by being part of the team engaging with SAA’s major pilots union, to negotiate the Regulating Agreement entered into in the late 1980’s. The Regulating Agreement between the union and the airline was costing SAA a significant amount of money, playing a role in the misfortunes that the airline had been facing. “We achieved a settlement and we’re going to pay it so that we can get rid of the agreement and reduce the costs.”
Fikile also spends a lot of time with the airline’s suppliers for various services, renegotiating payments in order to give SAA a chance to survive.
And, as one of the business’s most important stakeholders, he meets with his team of direct reports weekly to discuss the status of the business and to encourage them to stand together to help pull SAA forward.
Keeping people motivated
It can be difficult to get buy-in from your colleagues at a time when the aviation industry is facing its biggest challenge yet. As airlines and airports find themselves retrenching and resizing, Fikile and Mpola have had to find ways to motivate their teams.
Fikile explained that he has created a safe space for his team members to talk about what they have been struggling with. “One of the things that is coming up is that people are experiencing sickness, death in the family and not coping financially. While I can’t do much about most of these experiences, I can sympathise, and demonstrate care and understanding. That really helps take away the load, ease stress, and helps to keep employees motivated.”
The attendees of the evening showered both Mpola and Fikile with their support as the conversation drew to a close and they both used the opportunity to encourage people to start travelling again.